XRP (Ripple) Just Did Something It Hasn't Done Since 2024, and Here's What It Means for Investors

In 2012, a company called Ripple launched the XRP Ledger, a decentralized blockchain designed for rapidly settling global payments. XRP (CRYPTO: XRP) is the ecosystem's native cryptocurrency, used to pay fees and bridge fiat currency exchanges, speeding up transactions and minimizing costs.

However, Ripple went on to launch a comprehensive payment network that now supports a range of alternatives, including stablecoins. This is gradually eroding XRP's utility, contributing to a 72% decline in the token's value from last year's peak of $3.65. In fact, on Aug. 11, XRP briefly traded below $1 for the first time since 2024.

Here's what all of this means for investors going forward.

Image source: Getty Images.

XRP is no longer the only game in town

The global banking system is highly fragmented. Some financial institutions use the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network, while others don't, so transacting with one another often requires an intermediary. This creates friction, slows processing times, and adds costs.

Ripple Payments facilitates communication between banks, no matter what existing infrastructure they use, allowing them to settle transactions with one another directly and, therefore, instantly. XRP can standardize those transactions; for example, an American bank sending money to a Mexican bank via Ripple Payments might have its U.S. dollars converted into XRP tokens, which are then converted into Mexican pesos at the receiving bank.

This whole process takes just a few seconds, and it can eliminate costly foreign exchange fees that would normally come with converting U.S. dollars directly into Mexican pesos. In fact, such a transaction through Ripple can cost as little as 0.00001 XRP tokens, or a fraction of one U.S. cent.

But not every bank will use XRP because of its extreme volatility, which can result in steep losses if they need to hold tokens for an extended period. Ripple launched a U.S. dollar-backed stablecoin, Ripple USD (CRYPTO: RLUSD), in late 2024 to address this issue. As their name implies, stablecoins maintain a consistent value, so senders and recipients face virtually no risk of loss due to volatility. Plus, countries like the U.S. already have regulatory frameworks for stablecoins in place, making them a relatively safe choice.

Ripple USD runs on the XRP Ledger, so any transaction fees incurred are still payable in XRP tokens. Therefore, XRP isn't entirely redundant, but there is a good chance that stablecoins will absorb a growing share of transaction volume over time because of their more favorable qualities.

History suggests XRP could trade much lower in the future

When XRP soared to $3.65 last year, it marked the first new all-time high since 2018. Following that previous occasion, the token had lost 95% of its peak value by mid-2020, and it remained below $1 until November 2024. I think history could repeat, so its recent losses could be the start of a prolonged downturn.

As mentioned earlier, banks don't have to use XRP to benefit from instant cross-border transactions through Ripple Payments thanks to alternatives like Ripple USD. That means even if the network becomes wildly successful in the coming years, it won't necessarily translate into a higher value for XRP.

Moreover, bridge currencies like XRP weren't actually designed to provide returns for investors. In my earlier example, the American bank would be a buyer of XRP. Still, the Mexican bank would be an equal seller when it converts the tokens into pesos, so the transaction would be a wash and create absolutely no value.

It seems XRP's past rallies were mostly driven by speculative investors who thought the token would be more widely used than it currently is, so I'm not surprised it's trending lower. If the recent decline matches the magnitude of the post-2018 plunge, then XRP could eventually fall to around $0.18 per token. I'm not suggesting that will happen, but I think the recent dip below $1 is a clear warning that investors should brace for more downside.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends XRP. The Motley Fool has a disclosure policy.